What\u27d I Say?: Coase, Demsetz and the Unending Externality Debate

摘要

Economists study various problems referred to as \u22market failure\u22 - situations that, at least potentially, justify government intervention to solve them. Externalities (or \u22social costs\u22) are viewed as perhaps the greatest market failure problems. The externality issue has also occasioned much re-thinking of fundamental economic principles, particularly in the context of Ronald Coase\u27s article on \u22The Problem of Social Cost.\u22 Coase explained that externalities manifested a more fundamental issue in economics, the costs of transacting over rights to affect other\u27s welfare. Following Coase\u27s work, economists almost reflexively consider social costs problematic only when transaction costs are relatively high. Yet, Coase\u27s analysis has resulted in much confusion, even disagreement. For example, Harold Demsetz has recently objected to aspects of the Coase approach, as a matter of both economics and of government policy. As economics, Demsetz says, Coase\u27s focus on transactions costs is not helpful in resolving questions concerning externalities. Even if transaction costs were zero, externalities would still exist. Moreover, Demsetz objects that focus on transaction costs to explain persistent externalities furnishes spurious reasons for undesirable government intervention in markets. This paper summarizes and evaluates Demsetz objections, maintaining that Demsetz sometimes ignores points that Coase has made. At the same time, Demsetz adds new insights to the Coase Theorem.